The Law and the overwhelming majority of declarations of co-ownership require that syndicates of co-owners insure their building. This may seem surprising at first glance as the syndicate does not own the private portions nor the common portions. However, its main object is to ensure the preservation and the longevity of the building and to manage and administer it diligently following rules of the trade. This is why the legislator has given to the syndicate an insurable interest and has made it compulsory that it subscribe building insurance.
The covered property
The insurance must cover the common portions, the private portions (excluding the improvements carried therein), and the syndicate’s movable property. The insurance should be taken in the name of the Syndicate who will appear therein as the named insured. You must keep in mind that neither the co-owners nor their hypothecary creditors are the insured in this case. As for the improvements made to the private portions, it is the duty of each co-owner to protect them, by the means of their own insurance, including those that he or a previous owner may have made.
In addition, article 1070 of the Civil Code of Québec was amended in June 2018. Henceforth,it has a third sub-paragraph providing that "In addition, the syndicate keeps at the disposal of the co-owners a description of the private portions that is sufficiently precise to allow any improvements made by co-owners to be identified. The same description may be valid for two or more portions having the same characteristics.” This description, will serve as the reference unit. It must be filed in the register of the co-ownership, so that the co-owners requesting it may consult it. Remember that this new paragraph is directly related to the obligation to insure the entire immovable, including the private portions, to the exclusion of any improvements that would have been made therein (pursuant to article 1073 of the Civil Code of Quebec).
This new provision came into force on December 13, 2018, for co-ownerships established as of June 13, 2018. Those created before that date are not governed by it yet. They will be so governed on June 13, 2020. Nevertheless, it is in the syndicates of co-owners’ best interest to prepare this description right away, as if a loss occur, its settlement will be simplified.
However only accidental losses are covered. We are protected from damaging consequences of unpredictable, sudden and random events. Non-accidental damages are not usually covered by the insurer. The insurer also does not cover losses resulting from an inherent defect in the thing, such as a latent defect or a defect in workmanship when the immovable was built. The same principle applies to damages resulting from a recurrent lack of maintenance of the syndicate’s common portions. Therefore, the syndicate must maintain them rigorously as the insurer will not pay therefor in its place.
Replacement cost (Reconstruction cost)
The Law requires that the syndicate subscribe the insurance of the immovable to cover its “replacement value”. For more certainty, the legislator will impose specifically, on June 13, 2021 the syndicate to take out insurance covering the “reconstruction cost” of the immovable. The latter corresponds to the amount that will need to be paid out to rebuild the entire immovable, in the case of a total loss without taking into account any normal wear and tear (depreciation). This reconstruction value must without limitation take into account demolition costs, the fees of the professionals, such as those of the engineer, or of the architect, retrofitting to standards, usage and best practice along with applicable taxes (GST and QST). At the occasion of subscribing a policy, the broker or the damage insurance agent will ask the Board of Directors what is the amount of coverage required.
Required amount of coverage
To benefit from lower premiums, Boards of directors sometime have the tendency to underestimate voluntarily or involuntarily the value of their building. Failing to insure the immovable for its replacement value (of reconstruction) the amount paid out from the insurance may not be sufficient to cover rebuilding costs in the event of a total or partial loss. If a total loss occurs, the insurer is released by the payment of the amount of the insurance subscribed. If there is a partial loss, the indemnity will be calculated in accordance with the proportional rule. The directors of the syndicate could then engage the liability of the syndicate, and even be held personally liable. It is therefore recommended to have the replacement value (of reconstruction) appraised by a professional for insurance purposes. Such appraisals can be carried out by a Chartered Appraiser, member in good standing of the “Ordre des évaluateurs agréés du Québec (OEAQ)” (the Québec Order of Chartered Appraisers). This evaluation should be kept up-to-date at least every three to five years by a professional to avoid insurance insufficiency. However, the insurance policy may include a "co-insurance" clause which mitigates the harshness of these principles.
The law (article 1071.1 of the Civil Code of Quebec) will require, no later than June 13, 2022, any syndicate of co-owners to set up a liquid Self-Insurance Fund available in the short term. The obligation to set up such this fund is already an existing practice in several co-ownerships. The amounts accumulated therein belong to the syndicate and are not refundable to the co-owners who sell their private portion. This self-insurance fund is, first and foremost, intended for the payment of the deductibles in the insurance policies taken out by the syndicate. It is also intended to compensate the damage caused to property in which the syndicate has an insurable interest, when the contingency fund or an insurance indemnity cannot cover it. This fund is established by taking into account in account the deductibles and a reasonable additional amount to cover other foreseeable payments. Finally, it should be noted that the government will determine by regulation how to establish the minimum co-owners' contribution to this fund.
WHAT YOU SHOULD KNOW! The Government will determine by regulation, no later than June 13, 2021, the risks covered as a matter of law by the insurance policy of the syndicate. This coverage may be reduced as long as the excluded risks are expressly mentioned in the insurance policy or in a rider in bold typeface.
WHAT TO KEEP IN MIND: The Syndicate's insurance policy must provide, in all circumstances, for a waiver of any prospective recourse in subrogation against the co-owners, the persons living with them, the directors, the manager, the president and the secretary of the meeting of co-owners and the other persons responsible for its efficient progress. Since December 13, 2018, such subrogatory recourse of the Syndicate's insurer is legally excluded, except for bodily injury or moral damage or prejudice due to intentional fault or gross negligence.
WARNING! While purchasing the syndicate’s insurance coverage, the Board of Directors must declare any and all information likely to influence an insurer in determining the insurance premium, the appraisal of the risk or the decision to cover. If he fails to provide all relevant information to the insurer, the syndicate may be held liable for a denial of coverage or a reduced indemnity following a claim.
CONSULT THE PUBLICATION: Condo Insurance: Everything you should know at pages 27 and following.
Amount of insurance (insurance limit): Appraisal report Architect Bodily injury damage Building insurance (syndicate of co-owners) Chartered Appraiser Co-insurance clause Common portion Damage Insurance Damage Insurance Agent Deductible Denial of coverage Engineer Gross negligence Hypothecary creditor Insurance Insurance broker Insurance contract Insurance insufficiency (under insurance) Insurance policy Intentional fault (misconduct) Lack of maintenance of the common portions Moral damage Movable property Partial loss Preservation of the immovable Private portion Professional Fees Property Property and casualty insurer Property insurance Proportional rule Reasonable deductible Reconstruction cost Reference unit Retrofitting to standards Risk Rules of the trade (Best practices) Self-Insurance Fund Subrogation Subrogatory recourse of the insurer